AffiliationUniversity of Arizona
financial reporting quality
MetadataShow full item record
CitationChoudhary, P., Merkley, K., & Schipper, K. (2021). Immaterial Error Corrections and Financial Reporting Reliability. Contemporary Accounting Research.
JournalContemporary Accounting Research
Rights© 2021 Canadian Academic Accounting Association.
Collection InformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at email@example.com.
AbstractWe provide large-sample archival evidence on the nature and consequences of errors deemed immaterial to the previously issued financial statements containing the errors (immaterial errors). The incidence of immaterial error corrections has been increasing since about 2004, and these corrections are associated with modestly and discernibly negative share returns that are more negative for income-decreasing corrections and corrections that involve multiple issues. We find that immaterial errors are a leading indicator of poor reporting reliability as measured by future material and immaterial reporting errors, material weaknesses in internal controls, and SEC comment letters. Our findings suggest that immaterial errors provide researchers and investors with a more frequent and less severe indicator of potential audit or financial reporting issues as compared to more extreme reporting problems such as material errors corrected by restatements.
Note12 month embargo; first published: 07 July 2021
VersionFinal accepted manuscript